China’s Stocks Drop Most in More Than a Week as Brokerages Slide

China’s Stock Futures Drop, Signaling Benchmark Index Will Fall
An investor monitors stock prices at a securities exchange firm in Shanghai, China. Photographer: Qilai Shen/Bloomberg

China’s stocks fell, driving the benchmark index down the most in more than a week, as waning investor interest in equities drove brokerages down and lower metal prices dragged on materials producers.

GF Securities Co. and Huatai Securities Co. sank at least 2 percent. Zhongjin Gold Corp. paced losses by gold producers after the price of the precious metal slid below $1,700 an ounce. Bank of America Corp.’s China strategist said China’s stocks will face another difficult year in 2013 because of concern about the sustainability of economic growth.

“Some investors are doubtful about the magnitude of the economic recovery,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “That’s why you see some investors pulling money out of the market to lock in profits.”

The Shanghai Composite Index declined 1 percent to 2,061.48 at the close, the biggest retreat since Dec. 3. The CSI 300 Index lost 1.1 percent to 2,242.64. The Hang Seng China Enterprises Index slipped 0.1 percent in Hong Kong. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.4 percent in New York.

The Shanghai gauge has fallen 6.3 percent this year, heading for a third annual loss. Volumes on the index were 13 percent lower than the 10-day average, while 30-day volatility was at 16.1, compared with this year’s average of 16.9. The measure trades at 11.4 times reported earnings. Valuations fell to 10.8 this month, the lowest level since at least 1997, data compiled by Bloomberg show.

Stock Discount

The Shanghai index may trade at 1,923 at the end of next year as some major structural issues have worsened in recent quarters including an unstable financial market and an over-reliance on both property purchases and local government investment, David Cui, chief China strategist at Bank of America, wrote in a report dated Dec. 10. The target represents a 7.2 percent decline from today’s close.

The U.S. bank recommends buying telecom and non-bank financial stocks and selling luxury stocks on a government crackdown on corruption.

A gauge tracking financial companies declined 1.1 percent, the biggest contributor to losses on the CSI 300. GF Securities slid 2.4 percent to 12.45 yuan. Huatai Securities retreated 2 percent to 8.24 yuan. China Merchants Securities Co. dropped 1.9 percent to 8.90 yuan.

Economic Data

Even with today’s loss for the Shanghai index, it has risen 5.2 percent from an almost four-year low on Dec. 3 amid signs economic growth will rebound. HSBC Holdings Plc and Markit Economics are due to release a preliminary index of China’s manufacturing for this month tomorrow. The gauge may rise to 50.8, according to the median estimate of 11 economists in a Bloomberg Survey. The number of 50 is the dividing line between expansion and contraction.

Recent stock-market gains are failing to stem equity outflows as the number of trading accounts containing funds declined to the lowest in two years. Funded accounts dropped by about 49,000 in the week to Dec. 7 to 55.55 million, the lowest level since the week to Nov. 26, 2010, according to regulatory data compiled by Bloomberg yesterday. Investors emptied 205,000 accounts the previous week, the fastest pace in 16 months.

Chinese companies on the mainland trade at the biggest discount to their Hong Kong-listed counterparts since January 2011, according to an index from Hang Seng Bank Ltd., signaling locals are more pessimistic than overseas investors toward the nation’s shares.

The Hang Seng China index has climbed 24 percent since Sept. 5. Yuan-denominated A shares are restricted to domestic investors and a limited number of foreign institutions, while their H-share counterparts are open to overseas investors.

QFII Quotas

China is expected to allow more investment from qualified foreign institutional investors, the China Securities Journal said in a commentary today. QFII accounts for 1 percent of China’s stock market investment, compared with 30 percent of India’s and 26 percent of South Korea’s, according to the newspaper.

Zhongjin Gold, the country’s third-largest bullion producer by market value, slumped 3 percent to 15.49 yuan, its biggest loss in two weeks. Shandong Gold Mining Co., the second largest, declined 3.7 percent to 35.93 yuan. Gold for immediate delivery slid as much as 1 percent to $1,694.35 an ounce.

In the U.S., the Federal Reserve said it will buy $45 billion a month of Treasury securities starting in January, expanding its asset-purchase program. A majority of Fed officials don’t expect to raise the main interest rate until 2015.

Land Sales

The central bank should further ease monetary policy and cut the reserve requirement ratio, the Economic Information Daily reported, citing Liu Yingqiu, a researcher with the Chinese Academy of Social Sciences.

Property developers rose on signs the property market is recovering after the city of Shanghai sold a downtown commercial plot of land at the highest price this year.

Poly Real Estate Group Co., China’s second-largest developer by market value, gained 1.2 percent to 12.44 yuan. China Vanke Co., the biggest, added 0.9 percent to 9.32 yuan.

The 107,500-square-meter (1.2 million-square-foot) site near the Shanghai South Railway station was sold yesterday for 5.4 billion yuan ($864 million).

Solar stocks soared in New York after the government said it will subsidize about 100 solar-project developers, driving the benchmark index of Chinese U.S.-traded shares to a five-week high yesterday. The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., added 0.5 percent to a nine-month high of $39.

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